Table 3 - uploaded by Iyabo Masha
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This study assesses the experience of the Common Monetary Area (CMA) based on available empirical evidence over the last two decades. It pays particular attention to member countries' adjustment to economic shocks in recent years and the inter-country linkages, including the spillover effects of policies. The paper draws the main lessons from the C...
Citations
... Fourth, for the SAMU, Grandes (2003) and Debrun and Masson (2013) provide perspectives on its feasibility, Agdeyegbe, (2009) recommends against the union while the greater bulk of the literature in the strand advocates for a currency zone subject to improvements in compliant conditions in potential members states (Khamfula & Huizinga, 2004;Wang et al., 2007;Jefferis, 2007;Masson, 2008;Masson, 2008;Bangaké, 2008;Zehirun et al., 2015;Asongu et al., 2020b). ...
This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank, and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to the weighting and aggregation of the indicator. This article measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an optimal currency area as a theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time.
... Fourth, for the SAMU, Grandes (2003) and Debrun and Masson (2013) provide perspectives on its feasibility, Agdeyegbe, (2009) recommends against the union while the greater bulk of the literature in the strand advocates for a currency zone subject to improvements in compliant conditions in potential members states (Khamfula & Huizinga, 2004;Wang et al., 2007;Jefferis, 2007;Masson, 2008;Masson, 2008;Bangaké, 2008;Zehirun et al., 2015;Asongu et al., 2020b). ...
This study improves the African Regional Integration Index (ARII) proposed by the African Union, the African Development Bank and the United Nations Economic Commission for Africa by providing a theoretical framework and addressing shortcomings related to weighting and aggregation of the indicator. This paper measures monetary integration in the eight African Regional Economic Communities (RECs) by constructing an Index of African Monetary Integration (IAMI). It proposes an Optimal Currency Area as theoretical framework and uses a panel approach to appreciate the dynamics of the index over different periods of time. The findings show that: (i) inflation and finance (trade and mobility) present the highest (lowest) score while ECOWAS is (EAC and IGAD are) the highest (least) performing. (ii) Surprisingly, in most RECs, the highest contributors to wealth creation are not the top performers in regional monetary integration. (iii) The RECs in Africa are characterized by a stable monetary integration which is different from the gradual process usually observed in monetary integration because with the exception of the EAC and UMA, the dynamics of IAMI show a steady trend in the overall index across time. Policy implications are discussed.
... The Trilateral Monetary Agreement entered into force on 1 April 1986, among the economies of Lesotho, Eswatini (previously known as Swaziland), and South Africa, establishing the Common Monetary Area (CMA). Later, in 1992, the economy of Namibia joined the CMA (Masha et al. 2007). This agreement, as well as the corresponding bilateral agreements between South Africa and each of the three smaller members, offers a framework for the exchange rate and monetary policy of these economies. ...
The Common Monetary Area (CMA) presents an interesting case study because its economies employ two types of exchange rates: flexible (as in South Africa) and fixed (as in Lesotho, Eswatini, and Namibia). South Africa’s flexible rate is plagued by an unstable exchange rate, which affects other CMA member countries and significantly impacts economic growth. Therefore, this study explores the asymmetric effects of exchange rate shocks on economic growth by employing the panel non-linear autoregressive distributed lag (PNARDL) technique. The research utilizes panel annual data ranging from 1992 to 2022. The PNARDL estimates reveal that both negative and positive changes in the exchange rate significantly impede economic growth in the CMA in both the short and long run. Moreover, it is noted that there is an asymmetric impact of the exchange rate in the long run. The implication of this study is that the significant impact of exchange rate asymmetry is notable in the CMA region. This study suggests that policymakers should implement policies that actively support exports, such as offering export incentives or reducing trade barriers. The findings of the research also reveal that appreciation hurts economic growth. Therefore, this study further recommends that policymakers may explore enacting policies to expand the economy by reducing import dependence and addressing structural factors that impede export competitiveness.
... According to Chileshe et al. (2018) the most predominant and key economic objectives targeted by any economy are price stability and a stable high rate of economic growth. The main objective behind the establishment of the CMA monetary union is in fostering economic advancement and development of less developed participant members (Masha et al. 2007). In the measurement of economic performance economic growth, the Real Gross Domestic Product Growth (RGDP_G) rate has been regarded as a prominent indicator in the CMA region (Kashima 2017). ...
... For example, after a shock in the repo rate, Seoela's (2020) study discovered that the money supply in Lesotho increases sharply. Whilst Masha et al. (2007) revealed no significant influence on money supply after an innovation or shock is applied to the South African repo rate. ...
... Lastly, as depicted in Figure 7 after a one-standard-deviation shock is applied, the impulse response function on CMA economies' lending rates (LRATE) initially shows a sharp increase at the beginning periods, which gradually declines thereafter and dies off for the remaining periods. This sharp increase at the starting periods is in line with the general expectations and the a priori, which states that banks react by increasing lending rates after a restrictive monetary policy (Masha et al. 2007). ...
The CMA (Common Monetary Area) is a quadrilateral monetary arrangement encompassing South Africa, Namibia, Lesotho, and Eswatini. The four countries have undergone a gradual improvement in regional economic integration for the effective economic coordination of their policymaking. Despite the monetary coordination, the countries are still experiencing poor economic performance. This study traces how a shock or an unanticipated change in the anchor country’s central bank’s policy instrument, in this case, South Africa, affects the macroeconomic performance in the entire CMA region. Employing a Panel Structural Vector Autoregressive model (Panel-SVAR) and annual data from 1980–2021, the findings show that a positive shock in the repo rate from South Africa significantly affected important macroeconomic performance indicators. The results indicate that a shock in the anchor country’s repo rate is followed by a significant decline in RGDP_G, a decrease in inflation, a decrease in money supply, and an increase in lending rate in the entire CMA region. The study recommends that CMA monetary authorities and policymakers need to formulate policies toward cushioning the effects of unanticipated monetary policy shock from the anchor country as well as global shocks.
... The CMA is a multilateral agreement that provides a framework for a fixed exchange rate regime between the South African rand (ZAR) and the currencies of Lesotho, Eswatini 1 , and Namibia (herein referred to as the LEN countries). The main objective of this currency union is to foster the sustained economic development and advancement of the less developed members (Wang et al., 2007). The Agreement gives member countries the power to issue their local currencies with the South-African bilateral agreements dictating the areas where the currencies are legal tenders. ...
The Common Monetary Area (CMA) agreement has effectively granted the South African government sole discretion over monetary policy and implementation in the region. The effectiveness of this arrangement has long been under discussion given the heterogeneity of member countries. This paper uses a structural vector autoregressive (SVAR) to examine the efficacy of the interest rate channel in the CMA. Specifically, our analysis uses data from 2000M1-2018M12 to examine how economic output, inflation, money supply, domestic credit, and lending rate spread for each member country respond to shocks in the South African repo rate. The main findings indicate that a positive shock to the South African repo rate has a statistically significant negative impact on economic output and a positive effect on inflation at the 10 percent level for all countries in the CMA. The results also show that money supply, domestic credit, and lending rate spread respond asymmetrically across members countries.
... However, Pearson correlation is deficient in analysing series with noise compared to the DCCA (Piao and Fu 2016;Horvatia et al. 2011;Shin et al. 2020). Again, the four countries have been members of the Common Monetary Area (CMA) since 1975, in which currencies of Eswatini, Lesotho and Namibia are issued at par with South African Rand (Wang et al. 2007, Adam et al. 2021. ...
We used the detrended cross-correlation analysis (DCCA) method based on ensemble empirical mode decomposition (EEMD) to study the dynamic interdependence structure of daily domestic currency to US dollar exchange rates of 15 Southern African Development Community (SADC) exchange rate markets. We first decompose all series into intrinsic mode functions using EEMD and reconstruct the series into three frequency modes: high-, medium-and low frequency, and residue. The DCCA method was used to analyze the cross-correlation between the various frequencies , residues and original series. These were meant to address the nonlinearity and nonstationarity in observed exchange rate data. Finally, we formed a correlation network from the cross-correlation coefficients in all cases which revealed rich than would have been obtained from the original series. We observed similarities between the nature of cross-correlation between high-frequency series mimic the original series and the significant cross-correlation among the long-term trend of most SADC countries exchange rate markets. The innovation of this paper is to combine EEMD with DCCA to study the multifrequency cross-correlations of exchange rate markets, which can provide policymakers a deeper understanding of the dynamics of exchange rate markets toward the formation of currency unions.
... This implies that exchange rate markets in SADC are driven mostly by fundamentals, which, in turn, are most likely rooted in macroeconomic economic fundamentals (Redda & Muzindusti, 2017). The IMFs statistic of four countries; Eswatini, Lesotho, Namibia and South Africa are the same for the period studied (see (Jordaan, 2015;Wang, Masha, Shirono & Harris, 2007). ...
The need for exchange markets coordination in Africa is rooted in the quest of most economic blocs to form a monetary union characterized by a single currency and has therefore attracted the attention of researchers. The intrinsic complexity of the exchange rate market hinders researchers from producing consistently good results. The empirical mode decomposition (EMD) is a data-driven signal analysis method for nonlinear and nonstationary data. Empirical mode decomposition method can be used to divide nonlinear signal sequences into a group of well-behaved intrinsic mode functions (IMFs) and a residue, so that we can compare the similarities. In this paper, EMD and ensemble empirical mode decomposition (EEMD), a modified version of EMD, are applied to the exchange rate market of the Southern African Development Community (SADC). Through analyzing the intrinsic mode functions (IMFs) of EMD and EEMD, we find the EEMD method to perform better on the orthogonality of IMFs than EMD. We propose a new way of analyzing short and long-run comovement through the analysis of the characteristics of IMFs and residue. The analysis of the IMFs and residue obtained from EEMD showed that exchange rate markets in SADC are driven by economic fundamentals and 12 out of 15 countries examined showed some level of similarity in the long-term trend. Our findings have implications for the direction of future SADC monetary union.
... Namibia has hardly used central bank borrowing as a source of financing except for 2015Q1 ( Figure 2). The limited borrowing from central bank is reinforced by the restrictions from Common Monetary Area (CMA) agreement, which require maintenance of a one to one exchange rate with the South African rand and having national currency issued by the central bank to be fully backed by foreign reserves (Wang et al 2007). ...
This paper examined the impact of fiscal deficit on inflation in Namibia. The paper employed Autoregressive Distributed Lag Model (ARDL) and Granger causality approach using quarterly data for the period 2002 - 2017. Empirical results showed evidence of a long run positive effect of fiscal deficit on inflation in Namibia. This suggests that fiscal deficit has a direct effect on inflation in Namibia. The study also found a unidirectional causality running from fiscal deficit to inflation in Namibia. The study confirmed that South Africa’s prices have positive effect on inflation in Namibia. The key policy implication drawn for the result is that if not contained, high negative fiscal balances could impair the monetary policy objective of price stability. It is therefore advised that fiscal and monetary policies need to be well coordinated to bring fiscal deficit within acceptable level. Given that the main monetary policy goal in Namibia is to achieve and maintain price stability, the results in this study suggest that monitoring budget deficits and price developments in South Africa to develop informed policies is one way to achieve this objective.
... Considering the specific framework of this study on the SAMU, the extant knowledge on the proposed common currency area can be summarized in relation to positions for, positions against and positions for that are contingent on the convergence of certain criteria. The three contending positions are summarized in Section 2, notably: (i) positions for the embryonic monetary union (Debrun & Masson, 2013;Grandes, 2003); (ii) studies that have argued against the potential common currency area (Agdeyegbe, 2009) and (iii) research which has advanced positions on the feasibility of the monetary union contingent on some common efforts from candidate states ( Zehirun et al., 2015;Masson, 2008;Bangaké, 2008;Wang et al., 2007;Jefferis, 2007;Khamfula & Huizinga, 2004) 5 . It is apparent after comparing and contrasting contending positions that the dominant position in the literature is that the proposed currency area is feasible in the long-term if synchronization of and convergence in, some macroeconomic criteria is enhanced. ...
... The foundations of the SAMU were set with a Trilateral Monetary Agreement of April 1 st 1986 within the framework of a Common Monetary Area (CMA) ( Wang et al., 2007) 6 . ...
... Masson (2013) while studies with a stance on synthesis are Khamfula & Huizinga, 2004;Jefferis, 2007;Wang et al., 2007;Bangaké, 2008;Masson, 2008;Zehirun et al., 2015. Studies under the synthesis stance argued for relevance of the currency areas, contingent on efforts from member states in view of enhancing the harmonization of convergence criteria. ...
Purpose
The purpose of this paper is to investigate the stability of demand for money in the proposed Southern African Monetary Union (SAMU).
Design/methodology/approach
The study uses annual data for the period 1981 to 2015 from ten countries making-up the Southern African Development Community. A standard function of demand for money is designed and estimated using a bounds testing approach to co-integration and error-correction modeling.
Findings
The findings show divergence across countries in the stability of money. This divergence is articulated in terms of differences in cointegration, CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests, short run and long-term determinants and error correction in event of a shock. Policy implications are discussed in the light of the convergence needed for the feasibility of the proposed SAMU.
Originality/value
This study extends the debate in scholarly and policy circles on the feasibility of proposed African monetary unions.
... The Namibian and Eswatini national currencies do not co-circulate in South Africa alongside the Rand. The only exception is the Lesotho Loti which is accepted as legal tender and a medium of exchange only in surrounding South African border towns (Foulo, 2003;Masha et al., 2007;Tavlas, 2009;Seleteng, 2010;Asonuma et al., 2012 andFrey andVolz, 2013). ...
Purpose
This paper sets out to investigate whether the four members of the common monetary area (CMA) regime experience similar inflation-unemployment dynamics as explained by the Phillips Curve phenomenon.
Design/methodology/approach
This study uses a combination of seemingly unrelated regression (SUR) and Copula based marginal regression techniques to investigate existence of a common Phillips curve (PC) between members of the CMA. Model estimation was done using country specific annual time series data for inflation, unemployment and imports spanning from 1980 to 2014.
Findings
We find evidence of contemporaneous correlation between the residuals of individual CMA PC equations and a statistically significant trade-off between inflation and unemployment for all CMA countries. Wald test results of cross-equation restrictions reveal a 9.94% chance of a common unemployment coefficient for CMA countries.
Originality/value
Together, the results of the SUR and Gaussian Copula techniques provide mixed and inconclusive evidence to support the existence of a common PC among CMA member states. This study is the first of its kind in examining this phenomenon for currency board regimes like CMA, and one of the very few among emerging market economies.
